Federal suit alleges McDonald's AI engine overcharges customers

A federal antitrust lawsuit filed this week alleges that McDonald's uses an AI-powered pricing engine to set menu prices across U.S. locations, specifically accusing the company of overcharging customers for Big Macs and fries. McDonald's denied that it uses AI to determine individual customers' willingness to pay, stating instead that it provides franchisees with tools, resources, research, and recommendations to help them make informed decisions.

The legal action highlights a broader shift in the food industry toward digitized operations. Earlier this year, grocery chain Kroger reported using an AI platform called FlashFood to mark down perishables nearing the end of their shelf life, promoting these items to shoppers via an app. Electronic shelf labels are also becoming standard at major retailers including Kroger, Amazon Fresh, Walmart, and Whole Foods. In the U.K., supermarkets such as Tesco, Morrisons, and Asda are adopting similar digital pricing infrastructure.

Miroslava Marinova, a senior lecturer of commercial law at the University of East London, told CNBC that dynamic pricing involves changing prices in response to market conditions like demand, timing, capacity, or competitor prices. She noted that while this practice is not new and has been used for years by airlines and ride-hailing services, AI tools are altering the scope of data collection. These tools allow companies to gather information on transaction histories, browsing behavior, location, and purchasing patterns.

Bank of England economists Clare Lombardelli and Rupal Patel stated in April that more sophisticated technology is leading to prices that change more frequently and become more individualized. They warned this could lead to "perfect price discrimination," where firms charge as close to the maximum price a consumer is willing to pay as possible. This shift complicates statistical analysis because the consumer price index relies on a representative sample of prices. The economists explained that when prices shift continually and differently for each shopper, the concept of a representative price becomes strained.

Marinova explained that the traditional distinction between dynamic and personalized pricing is blurring. Dynamic pricing responds primarily to market conditions, whereas personalized pricing uses consumer information to estimate willingness to pay. As retailers combine market-level information with detailed consumer data, the boundary between the two becomes thinner. Walmart and Kroger have publicly insisted they do not use dynamic or surge pricing for individualized customer prices, but rather use tools to streamline operations.

Regulatory responses are emerging in the United States. New York requires businesses using personal data to set prices to disclose this practice clearly. Maryland has restricted food retailers and delivery services from using personalized, data-driven pricing to charge higher prices for certain food items. New Jersey and Connecticut have enacted measures targeting what they call "surveillance pricing." While dynamic and personalized pricing can make some products more accessible through discounts, Marinova warned that individualized pricing makes it difficult for consumers to compare prices or understand why they received a particular price.

The Bank of England economists added that personalized pricing splinters the consumer experience, meaning households will face increasingly different inflation rates. They noted that when prices differ for the same item, inflation becomes more personalized, and aggregate measures may no longer reflect individual household experiences.